South African Airways intends to take "urgent steps" to break its "loss-making cycle" after the country's auditor general, Kimi Makwetu, released figures showing that the flag carrier incurred a R5.57 billion ($470 million) net loss last year.

"The board of SAA has noted and accepted the auditor general's report," states SAA chief executive Vuyani Jarana. "The majority of the airline's operations are sound, and we are building on this to ensure we break the loss-making cycle and transform the airline into a viable and sustainable entity."

Jarana confirms the contents of the auditor general's report released earlier this month, showing that SAA incurred net losses of R5.57 billion in the 12 months to March 2017 billion and R1.48 billion the year before.

The auditor general's audit findings "will form part of remedial action in strategy implementation", he says.

SAA's financial result for the current fiscal year to March 2018 "will not be much different", Jarana warns. The airline will publish its results as part of an "integrated report" later this month.

Jarana says the South African flag carrier has had "many previous turnaround strategies" in the past, "which have not been implemented", but this time the airline's board is "committed" to putting its current five-year restructuring plan "into practice".

He says the Star Alliance carrier has already made "significant steps" in its turnaround plan, including changes to its network and an "upgraded" product on its London route.

SAA's network remains under "intense scrutiny" with a clearly defined "minimum profit margin target" at the route and network level, says Jarana.

A "change hub" has been set up as a command centre for "implementation of the change initiatives". A chief restructuring officer has also been appointed.

The immediate focus of the strategy is on liquidity management, balance-sheet restructuring, cost management and revenue optimisation, which are intended to stem the losses and drive profitability.

Despite a R10 billion state bailout for SAA last year, Jarana says the state-run airline's five-year plan will require further "support and funding" from the South African government. The "appropriate terms" for such support are currently under discussion.

Jarana says SAA has "never been properly capitalised", and any company will reach a point where defined maximum debt capacity "beyond which debt becomes a burden".

He adds: "We need to do more and work closely with the shareholder to find lasting solutions that will materially improve SAA's equity position."

Source: Cirium Dashboard